Bought Forsys Metals

Back in January I had an opportunity to participate in a secondary offering of Forsys Metals. A secondary offering occurs when a public company issues treasury shares to raise money for certain purposes by the issuance of treasury shares. In this case Forsys is a junior mining company that is developing some uranium properties in Namibia. I didn't own any pure uranium plays and the established mining companies are quite expensive. While there is some risk in buying uranium stocks with the price of uranium so high, this risk is offset in this case by the fact that there is a natural increase in value of a mining stock when a mine begins production. Forsys will probably be trading at a higher price than I paid for it even if the price of uranium falls.

Why does the stock go up when a mine begins production? Sometimes disaster happens. Caminco, the largest Canadian uranium miner was developing a mine at Cigar Lake last year. Before any uranium was mined the mine was flooded. Extra months of time and millions of dollars more will be needed to bring the mine into production. Cominco can afford this, but for a junior mining company like Forsys, something like this would be devastating. There is a very substantial risk in investing in Forsys, however the potential rewards are great. You have to make a rational examination of the risk versus the potential reward. In this case I thought the reward was worth the risk. So I bought a half position in Forsys at $4.75 a share. I won't be able to sell these shares until June. Right now it looks like a winning investment as the stock has traded at over $9.00 before falling back slightly just recently.